The most recent Gold Demand trends report from the World Gold Council has revealed that global gold demand in the first half of 2022 went up by 12% amid stronger exchange-traded fund (ETFs) inflows. The rally is great news for the gold industry, which had seen demand drop by 8% year-on-year in the second quarter of 2022, at 948 ton. The WGC Gold Demand Trends Q2 2022 report stated that gold demand stood at 1,031.8 tons during Q2 2022.
The demand for gold was affected by a decline in the number of central banks buying gold, increased outflows from ETFs and reduced demand from the technology sector, the report said.
Gold prices surged in April thanks to increasing inflationary pressure and geopolitical risks before dropping by 6% in the second quarter as the rising interest rates coupled with a strong greenback forced investors to invest their money elsewhere. As a result of this 6% price drop, outflows from gold ETFs in the second quarter went down to 39 tons. Net inflows in the first half of the year were at 234 tons, up from 127 tons in the first half of 2021.
However, gold-backed ETFs may not perform admirably in the second half of the year because of the Q2 decline, especially as the U.S. Federal Reserve strives to arrest inflation rates by increasing the benchmark interest rates.
The WGC Regional CEO in India stated that gold traded on the international markets at an average price of $1,870 per ounce sans tax during the April-to-June quarter compared to $1,816 an ounce in 2021. Overall investment in gold dropped by 28% to 205.8 tons during the April-to-June quarter, the WGC report revealed, compared to 286.1 tons in the same period last year.
According to Louise Street, an EMEA senior analyst, macroeconomic factors such as geopolitical uncertainty and rampant inflation supported the gold market in the first half of 2022. Street acknowledges that the market faced headwinds such as a significant rise in the value of the American dollar and soaring interest rates that put plenty of pressure on the market.
Despite this, Street said, gold has been among the best-performing assets in 2022, with gold prices seeing an exponential rise in the first quarter of the year and in the first half of 2022 compared to the same period in 2021. She said that the second half of 2022 will have both opportunities and threats for gold, with the metal continuing to enjoy its status as a safe haven asset but having to contend with increased tightening of monetary policies coupled with an increasingly stronger dollar.
It remains to be seen how extraction companies such as Royal Gold Inc. (NASDAQ: RGLD) will ride out the turbulence caused by the expected headwinds in the coming months.
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